Short Sale vs. Foreclosure

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Short sales are much different from foreclosures in both the result to the homeowner and in the process itself. In a short sale, the lender agrees to the short sale process, with the benefits to the homeowner being reduced impact to his credit score, and the possibility of waiver of any payoff shortfall. A foreclosure is a process forced on the homeowner by his lender with the goal of evicting the homeowner from the property so that the lender can seek to dispose of the property itself, generally by public auction.

If the homeowner has already been given notice of foreclosure by the lender but he successfully enters into a short sale contract prior to completion of the foreclosure process, then the foreclosure is generally stopped by the lender until the property is sold to the new short sale buyer.

A Buyer’s Market, Short Sales and A “Great Deal”

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A buyer entering the residential real estate market looking to steal a great deal could be surprised to find that a short sale may not be their best avenue for success. In a short sale the mortgage lender is agreeing to allow the homeowner to sell the property at a price that is less than the amount the homeowner owes on the mortgage. The lender is not obligated to grant the homeowner the benefits of a short sale, and the lender goes through a very thorough process to be assured that the homeowner has an acceptable reason for requesting the short sale, and that the Contract of Sale for the property meets certain minimum financial requirements for the lender itself. By virtue of the short sale process the homeowner is not allowed to take any money from the transaction, so the homeowner may not have a strong interest in what price the property sells for. For this reason, the lender carefully scrutinizes every short sale offer, and recent history has shown that more short sale contracts are denied than are accepted. The number one reason for these rejections is low offers that would leave the lender in an unacceptable financial position.

If a buyer really has an interest in a property being offered as a short sale, the buyer should work with his Agent to determine what the true market value of the property is and make an offer from this starting point. Unreasonably low offers waste the time of both the lender and the seller and can result in both the buyer and the seller missing the short sale opportunity. To the seller this can potentially mean foreclosure or bankruptcy, and to the buyer it can mean missing out on a good value on a property often in excellent condition.

Benefits to the Lender In Accepting A Short Sale

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The realities in the current housing market dictate that there are substantial financial benefits to the lender in agreeing to a short sale with the homeowner. Primary among these direct benefits is the possibility of quickly eliminating further expenses to the lender associated with this distressed property while concurrently providing the lender with the highest amount of immediate cash possible.

At the same time, the alternatives to the lender in denying the short sale are very limited and expensive, including forcing the homeowner into foreclosure or taking back the title to the property through the process of deed-in-lieu. A foreclosure requires a lengthy and expensive legal process, and both alternatives require that the lender take the now-vacant property back into its inventory of distressed properties. Holding the properties in inventory requires that the lender itself bear the costs of trying to maintain and sell the property, both of which require additional time and expense for the lender. Add to that the fact that the market for such homes continues to decline in many areas, and the opportunity for the lender to successfully sell the property outside of a negotiated short sale becomes challenging.

Satisfaction of Mortgage Debt Through A Short Sale

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One of the first issues that a homeowner must consider when evaluating the benefit of a short sale is whether or not the lender will accept the sale proceeds as full satisfaction of the mortgage debt. In other words, will the lender accept less than what it is owed or will the lender require that the homeowner obligate himself to make payments on the deficiency until this amount is fully paid. Given that the most significant benefit to the homeowner in a short sale is the release of his obligation to pay any deficiency, this issue has to be negotiated on behalf of the homeowner with the lender before he enters into a short sale. Further, if there is more than one mortgage then this issue must be settled for all such lenders.

If the lender agrees to the short sale process but declines to waive the deficiency then the homeowner may consider other options including foreclosure and bankruptcy. Bankruptcy has a number of substantial consequences, and requires the use of a qualified attorney. Bankruptcy affects more issues than simply relief from the deficiency on the residence, but it is possible that the homeowner will get relief from the deficiency through bankruptcy.

Have Patience With A Short Sale

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The greatest drawback for a buyer when making a purchase through a bank short sale process is the amount of time that can pass between the offer and contract with the homeowner and the final approval of the sale by the mortgage lender(s). The reason for the long delay is that the lender must give approval for the sale, and this approval requires that the lender consider a number of issues.

First, the lender must agree to the short sale itself. Remember, the very definition of a short sale is that the homeowner is going to get less money when he sells the property than the amount of his mortgage debt. There has to be a reason for the lender to agree to accept this deficiency, and the first step in the lender’s evaluation process is to determine if the homeowner has a reason that the lender approves of for selling his home at a loss. There are many reasons that are acceptable to a lender, and most of them can be bundled into the category of financial hardship as noted above.

Second, the lender must evaluate the terms of the Contract of Sale signed between the homeowner and an independent third party buyer. This evaluation requires that the lender determine the market value of the homeowner’s property against the contract price, the timing of settlement, the financial status of the buyer, and any other terms of the Contract that could affect the overall value to the lender. While this process is not unlike that of a standard sale, which is accomplished by the parties in less than forty-five days, for a lender overloaded with similar short sales, this process can drag on for months.

Finally, there are some of the standard time frames of a normal sale that must be added to the process after the lender has given its approval to the Contract. Remember, the buyer still has to get loan approval and the property has to be appraised by the new buyer’s lender. While most short sales are “As Is” and there will be no repairs made by the homeowner or his lender, the Contract may allow for an independent inspection of the property by the buyer for his information only, and this may be a factor in the time to closing.

Any buyer entering into a short sale should be aware of this potential delay and be prepared to submit any Addenda that their Agent suggests are necessary to keep the Contract valid over time. At the same time, a buyer in a short sale should understand that the Contract that they signed with the homeowner is not complete until the lender gives its third-party approval, and therefore the buyer can generally cancel the contract until such approval is granted.

The Short Sale Process In Brief

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The short sale process generally begins when the homeowner approaches his lender with concerns about his ability to continue making his mortgage payments. At this point the homeowner may or may not be current on his mortgage payments, but the homeowner has some reason to believe that falling behind is certainly a real possibility. Typically the homeowner is experiencing some form of economic hardship such as loss of employment, divorce and reduction in income, medical bills, or even employment relocation. The lender will immediately send the homeowner a packet of materials designed to help the lender make two determinations.

First, the lender will seek to evaluate the homeowner’s financial situation in order to determine if there is a reason that the homeowner may be unable to meet his mortgage payments, and if so is there any way that the homeowner can rectify this on his own.

Second, the lender will provide information regarding payment alternatives for the homeowner to consider, including loan modification, certain Federal modification programs, and other alternatives including a short sale. In the discussions that follow the lender and the homeowner may agree to try alternative means of keeping the homeowner current on his payments, but at some point an agreement may be reached that the homeowner is going to try to sell the property as a short sale. In this process the lender provides the homeowner with a short sale package containing very specific documents that must be submitted to the lender for review, as well as specific processes that the homeowner must follow before a short sale will be approved by the lender. Included in the package are directions regarding documents and processes that the Real Estate Agent must comply with. One key to successfully negotiating a short sale is the absolute adherence to the specific requirements of the lender, including timely response to every document request. Another key is to work with an Agent that is familiar with the short sale process and recognizes the necessity for adhering to the requirements of the lender.

The short sale evaluation process does not begin until the lender has received all of the required paperwork from both the homeowner and his Agent. Once the review begins the Agent and the homeowner enter into the process of listing and selling the property with the understanding that a short sale raises a number of considerations not common to the standard sale. Again, an Agent familiar with the short sale process can identify these differences and how to most favorably deal with them.

What is a Short Sale

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Some Basics About Short Sales

A “short sale” occurs when a homeowner must move out of their property and finds that the market value of their home is less than the amount of money he (or she) owes on their mortgage. You may have heard this referred to as being “underwater”.

Simply put, the proceeds from the sale will not be enough money to pay off the mortgage. This difference between the total amount of the mortgage and the amount that the homeowner will pay to the lender is called a deficiency.

When someone is “underwater” with their mortgage, there is a short list of options they have available to sell their home.

The homeowner can make up the deficiency by bringing the necessary money to settlement.

If this is not possible, the homeowner can approach the lender about accepting this “short” sum of sale proceeds as full payment on the mortgage.

The lender is under no obligation to accept the “short sale” as consideration for the release of the mortgage lien, and as discussed in some of our related posts, the lender may still attach conditions regarding repayment of the deficiency prior to the lien release.

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Howard County Home Buying | Seven Steps for Success

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What The Professionals at Masters Realty Do To Support The Best Interests of Our Buyers

The Purchase Process

The fun begins where it should begin, with a discussion of the buying process. Our agents have guided many buyers through the home buying process, from initial consultation with our clients to the excitement of the day of actual purchase. Many of these clients have been first time homebuyers, while for many others this move represents another purchase as their families have grown or they have relocated to new areas. But regardless of how much experience each buyer brings to the purchase process, the fact is that the purchase process itself is remarkably similar for everyone. It is only when we look into the details of each step in the process that we see where the individual criteria for their home purchase come into play.

The following is an outline of the home buying process for our area, including what each buyer can expect to accomplish in each step along the route to the next home purchase. But you can relax as we move forward, confident in the knowledge that many, many other buyers have been down this road before, that we are here to guide you, and that this should be remarkably fun, exciting, and ultimately tremendously rewarding.
Step One:

An Overview and Identifying Your Objectives

Just like any good project, the first step is to discuss the fundamentals of your home search. These include why you are relocating and when you need to move, as well as what factors determine where you want to live. Do you have a home to sell and if so, do you need to sell it before you can relocate? How about your rental lease, and when will it expire? Have you confirmed your budget with a lender, and what type of loan are you considering? We need to have a conversation about the specifics of the home you are considering. This discussion includes such thoughts as the type of home you see moving your family into, where that home would be, what type of features you will need and which features you simply want to have, where these fit into your budget, how long a commute to you envision, how important are the schools, and many other ideas that will arise and change in importance as the process proceeds. Once we discuss your needs and desires, we will then move to an in-depth overview of the buying process, identifying each step where opportunities exist for you to maximize your purchase opportunities while ensuring that you are comfortable with each step before we proceed. Using the information we gain from this initial conversation we can move along the process as follows.
Step Two:

Financing, Budgets and Lenders

Your financial situation is a very personal matter, and we recognize that this is a subject that many of us do not wish to discuss with anyone other than our bankers or our family. And that is perfectly acceptable in the home purchase process. However, it is necessary that all buyers know their budget and the type of loan they will be using to make their purchase. This generally means that the buyer must speak with a qualified mortgage lender. Many of our buyers show up at the start with this information, ready to tell us what they are comfortable and qualified to spend. In the event that you have not taken this first step and that you do not know a prospective lender, we can help you identify potential lenders with whom you can have preliminary conversations with the goal of determining your purchase budget.
Step Three:

Determine Your Search Criteria and Look At Homes

Based on the results of our initial conversations and the information from the lender regarding your budget, we will assist you in defining the specific features of your home purchase, including among other criteria the types of home styles that interest you, the location of the neighborhoods that meet the needs of you and your family, and the features of the home itself such as a garage, finished basement or yard. With these considerations in mind and with our knowledge of the areas of interest to you, we will create a list of appropriate homes currently on the market, and begin to show you those homes that appeal to you.
Step Four:

Making an Offer and Negotiating a Contract

Using our extensive experience and knowledge of the purchase process we can assist you in making a solid offer for a property, taking into consideration the recent sales of other comparable properties in the area, as well as the effect that each term of the offer may have on the ultimate value of your offer to the needs of the sellers. We will carry this skill and experience further into the negotiation of the terms of the actual purchase and the complex contract process with the goal of ensuring the best overall transaction for you based on your unique requirements.
Step Five:

Home Inspection and Repair Negotiations

The sale of the home is not done when the seller agrees to your terms in the Contract. Not by far. Following contract your will need to evaluate the property to be certain that it is in a condition that meets your expectations. While you have had the opportunity to see the property a few times, you are unable to look into all of its systems to determine whether they have been maintained and if they are in good working order. You will need to have a professional home inspector evaluate the entire property. Based upon the results of the home inspection, you will provide the seller with a list of items that the you would like to have repaired. This list can be short or quite exhaustive, but the terms of the Contract afford you the right to terminate the contract under certain circumstances relative to this repair request. This is a very important and often quite contentious part of the purchase process, given that the seller will possibly wish to limit the expenditure of time or money on a property the seller is leaving. We are very sensitive to this inspection process, and we are quite skilled at assisting the parties in reaching an agreement regarding repairs. We understand the effect of the terms of the Contract in this area, and we will monitor the repair process to ensure that your interests are protected.
Step Six:

Appraisal, Loan Approval and Closing

While everything else is going on regarding the home inspection and repairs, the lender will have the home appraised to assure the lender that the property is worth the loan. The loan process has become much more detailed in the past few years as a result of the tighter loan requirements during the recent economic slowdown, and the lender will not provide a loan for more money than the amount of the appraised value. We will provide the appraiser with documents showing the value of comparable homes in the area to support the purchase price as representing a fair market value, and should the appraisal come back below purchase price we will negotiate with the seller seeking to reach some agreement that can save the sale.
Step Seven:

Lender Documentation, Title Search and Settlement

The last step in the purchase process involves the use of a title company. The title company does the title search to ensure that you are buying the property from the actual owner, and that the title and the deed are not encumbered in any way. We understand the many issues that can arise as the lender and the title company complete their work, and we will monitor and guide all of the parties toward this final transfer of title from the seller to you.

Selling Your Home In Howard County

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The Selling Process

Our agents have successfully guided hundreds of area sellers through the home selling process, from the initial consultation with our clients to the excitement of the day of actual transfer of title. We are highly experienced in the steps necessary to market and sell a home, and our understanding of real estate law and the complex contract procedures enhances our ability to assist our sellers in getting the best terms of sale for their property. We work with our sellers to understand the unique mix of issues that are important to each sale, and to apply this understanding throughout the sale process. Our goal is make certain that we are totally focused on reaching a sale that is truly in the seller’s best interests.

The following is an outline of the home selling process for our area, including what each seller can expect to accomplish in each step along the route to the home sale. You can relax as we move forward, confident in the knowledge that many, many other sellers have been down this road before, that we are here to guide you, and that this should ultimately be rewarding.

Step One:The Sales Process and Identification of Objectives

Just like any good project, the first step is to discuss the fundamentals of your home sale. It is important that we understand the basics of your sale, including why you are relocating and when you need to move. What is the condition of the property, and are you willing to make changes if necessary to increase the likelihood of selling the property? What do you owe on the property and how flexible are you regarding listing price and closing date? These and other factors can have a significant impact on decisions regarding the timing of the listing, the list price, the nature of improvements to be made to the property, and an acceptable settlement date. Once we have discussed these issues we can provide our clients with an in-depth overview of the selling process, identifying each step where opportunities exist for the seller to maximize their selling opportunities, and ensuring that our sellers are comfortable with every step before we begin.

Step Two: Comparables

We know the market in the area, and we provide our clients with current information regarding the overall market for local home sales, including documentation for recent local sales of comparable properties and how such sales reflect on the value of our clients’ properties. It is important that you understand what these comparable sales mean in relation to your home sale and that everyone agrees on your initial list price. Pricing your property incorrectly can result in your home languishing on the market, costing you valuable time and resources, or selling below market price and costing you direct sales dollars. We strive to assist you in setting a list price that is in your best interests.

Step Three: Property Evaluate, Staging and Repairs.

It is imperative that your property is in the best showing condition possible. This does not mean that you have to sink money into the property, but rather that it shows as the best example of what it is. That is, it can show as the best four bedroom, two bath colonial in a newer neighborhood, or it can show as the best short sale and greatest value among other short sales. In today’s market, buyers are very selective, and only those properties that stand out will attract an offer. We know what buyers are looking for, and we assist you in identifying positive enhancements that could result in a faster sale or a higher sales price, as well as those factors that must be corrected in order to permit any sale at all.

We also assist you in properly staging your property and in suggesting changes to the overall presentation of the property so that it shows itself in the best light possible. Studies show that homes that are staged sell much more quickly and for a higher price than homes that are not staged. Each of our agents are experienced stagers in their own right, but we will pull in full time stagers when the property condition requires that we do so.

Step Four: Digital, Print and Internet Marketing

Studies show that over 95% of all buyers employ the web in their home search, and that the vast majority of these shoppers will not even consider looking at a property that does not have a substantial photographic depiction of the property. We recognize the importance of a strong digital presentation of the property, and we fully document your property for both digital and print advertising. on our website, the real estate agents’ multiple list service, and the vast array of independent real estate websites which provide this information to the buying public. We employ the greatest use of appropriate digital and print advertising to effectively present the property to the widest range of potential buyers, including specifically our website, the multiple list service for real estate agents, and the use of a vast array of real estate websites that target buyers in this region. We use the available tools to ensure that virtually any buyers looking for a home like yours will find your listing on one or more real estate websites.

On the very local level, we place a Sale sign with a brochure holder on your property, hold appropriate Brokers Open Houses to showcase the property for other real estate professionals, and advertise and hold Open Houses especially for neighbors and friends who may know someone who is interested in relocating into this neighborhood.

Step Five: Offer and Contract Negotiation

Using our extensive experience and knowledge of the sale process, we assist our clients in the complex evaluation of each individual purchase offer, emphasizing the balance of effects that various terms may have on the overall acceptability of the offer when compared to the best interests of our seller. Once you have evaluated an offer that you deem to have potential, we assist you in the complex contract negotiation process and in the determination of the final terms with the goal of ensuring a contract that is in your best interests.

Step Six:Home Inspection and Repair Negotiations

The sale of the home is not done when the buyer agrees to your terms in the Contract. Not by far. Following contract the buyer will evaluate the property to be certain that it is in a condition that meets their expectations. For this to happen the buyer will need to have a professional home inspector evaluate the entire property. Based upon the results of the home inspection, the buyer will provide you with a list of items that the buyer wants you to repair. This list can be short or quite exhaustive, but the terms of the Contract afford the buyer the right to terminate the contract under certain circumstances relative to their repair request. This is a very important and often quite contentious part of the purchase process, given that you will possibly wish to limit your expenditure of time or money on a property you are leaving. We are very sensitive to this inspection process, and we are quite skilled at assisting the parties in reaching an agreement regarding repairs. We understand the effect of the terms of the Contract in this area, and we will monitor the repair process to ensure that your interests are protected.

Step Seven:Appraisal, Loan Approval and Closing

While everything else is going on regarding the home inspection and repairs, the lender will have your home appraised to assure the lender that the property is worth the loan. The loan process has become much more detailed in the past few years as a result of the tighter loan requirements during the recent economic slowdown and the lender will not provide a loan for more money than the amount of the appraised value. We will provide the appraiser with documents showing the value of comparable homes in the area to support the purchase price as representing a fair market value, and should the appraisal come back below purchase price we will negotiate with the buyer seeking to reach some agreement that can save the sale.

Step Eight: Lender Documentation, Title Search and Settlement

The last step in the purchase process involves the use of a title company. The title company does the title search to ensure that you as the seller are the actual owner of the property and that the deed is not encumbered in any way. The title company also takes the loan documents from the lender and combines them with the title search results to create the final loan package. This loan package sets forth the obligations of the parties regarding the closing process, including how much money the buyer needs to have on hand in order to purchase your home, and how much money you will either receive at closing, or what amount you will need to bring to closing in order to pay off any outstanding mortgages or other debts. We fully understand the many issues that can arise as the lender and the title company complete their work, and we will monitor and guide all of the parties toward this final transfer of title from you to the buyer.